Preview of Q2 2019 Quarterly Market Report


Our Chief Investment Officer, Eric Cramer, gives a brief 2019 second quarter recap and an overview of the markets going into the third quarter of 2019.

Thanks for listening today. Please join us for one of several upcoming BIP 2019 Quarterly Market Report presentations.


JULY 30 AT 12:00 PM
AUGUST 8 AT 12:00 PM
AUGUST 16 AT 12:00 PM
JULY 25 AT 12:00 PM
AUGUST 1 AT 12:00 PM
AUGUST 13 AT 12:00 PM



AUGUST 14 AT 12:00 PM

Don’t Just Do Something, Stand There!

That expression has been around for a while, and is perhaps most famously uttered by the “Mad Hatter” in Disney’s 1951 adaptation of “Alice in Wonderland”.  Investors inclined to look for the next big thing are busy tearing apart their portfolios right now, trying to “do something” when maybe they should just “stand there.”

According to what we’re seeing in market reports, some investors are seeing the suddenly more accommodative Federal Reserve posture as a sign to load up on equities.  But some investors are seeing falling rates as a signal that the decade-long economic expansion is finally over, so they are getting out of stocks and going to fixed income or cash.  And the pages of popular financial websites are full of articles that promise to help investors figure out if the tariff war is full of opportunity, or possible ruin, and so some investors are making big moves based on their personal predictions on the issue.

There is a problem with this approach; it rarely works, but it doesn’t stop investors from believing in the impossible.  I think some investors have “believed as many as six impossible things before breakfast”, to quote the Queen (again from Disney!)  While constant changes in an investment strategy can lead to terrible results, at a minimum it leads to unpredictable results.  The big lesson that many investors learn the hard way can be distilled to this:  if you have a sensible plan, then it’s the adherence to that plan and the passage of time that brings the returns you deserve.  If you like to cook, then you probably don’t make a stew by putting all the ingredients in the pot, then immediately begin trading out the carrots for potatoes.  Instead, you follow the recipe , and then you let the stew cook.  Portfolios work the same way; they need time to cook.

This quarter we are going to review our 20-year capital market expectations, and see how different portfolio “recipes” lead to different outcomes over time.  We hope you will join us for one of our Quarterly Market Report lunches, or the webcast, to get all the details.  We will send out another email in a few days with a link to the presentation so you have all the materials in advance.

We know a few things about capital markets from history.  For instance, in the long run equities tend to bring higher returns than fixed income, but at the inevitable cost of higher volatility.  If you’ve spent any amount of time watching CNBC, Bloomberg, or Fox Business, then you could be forgiven for thinking that making big changes in your portfolio at just the right time is a rational way to cheat the markets and get a better deal for yourself.   The late John Bogle, founder of The Vanguard Group who passed away earlier this year, is no longer available to show up on those networks and spread the message that you should probably just stay calm and stick to your plan.

RIP Mr. Bogle; we will miss you.   My favorite quote from him was that “time is your friend; impulse is your enemy.”  Mr. Bogle wasn’t anything like the “Mad Hatter”, and at times he elaborated on this notion by explaining that successful investing for many people had more to do with avoiding big mistakes than it did with having some brilliant insight into the markets.  In other words, impulsive investors can be their own worst enemies (and we should include professional investors in that group too).

We’ve seen impulsive investor behavior pick up a bit lately, but we saw it earlier in the year too.  However, this last quarter was a good example of how we all stand to be rewarded, on average, by time and the power of compounding.  The U.S. fixed income index returned 3.08% and the global equity index returned 3.37%.  That means that reasonably diversified portfolios are at about the same allocation that they were at the end of the last quarter, just bigger.  And it didn’t matter where you were on the risk scale, all public market returns were pretty similar for portfolios that were all fixed income or all equities, or somewhere in between.  So for many investors that means there is nothing to do.  If your plan hasn’t changed for good reasons, then just let the stew keep on cooking.

But that raises a question:  are we making any changes to investor portfolios?  In some cases, the answer is yes.  Private market investment opportunities require deliberate action, so that’s one good reason for a change.  When cash comes in or out of a portfolio, then that can prompt the need for a change, or to be more precise it may require a rebalancing back to the planned level of risk.

But big market declines aren’t known about in advance—if the decline could be anticipated then the market would have already fallen, because that’s how markets work.  What John Bogle didn’t always explain, but the academic research strongly supports is this:  the best path to success with your portfolio strategy is to have a plan in place that mandates how you will react after the fact.  In most cases that’s as simple as having a plan for when to buy if the market falls, and when to sell when the market rises, or when to just do nothing.  For some folks, the idea of reacting after market events happen just doesn’t seem ambitious enough.  But what the real pros know is that it takes nerves of steel to buy when the market is falling.  And it can take real courage to take profits when the markets seem like they are going to rally forever.   And sometimes it just takes some good sense to not do anything.

Thanks for listening today. This is Eric Cramer, Chief Investment Officer at BIP Wealth saying goodbye for now, and I look forward to seeing you at one of our upcoming Quarterly Market Report lunches or on the webcast.


Disclosure: This communication contains general investing information that is not suitable for everyone and is subject to change without notice. Past performance is no guarantee of future results and there is no guarantee that any views and opinions expressed will come to pass. The information contained herein should not be construed as personalized investment advice, tax advice, or financial planning advice, and should not be considered a solicitation to buy or sell any security. Investing in the stock market and the bond market involves gains and losses and may not be suitable for all investors. The Global Equity index is the MSCI ACWI IMI Index, which is a free float-adjusted market capitalization weighted global index selected as the best available proxy for a diversified stock portfolio consistent with modern portfolio theory. Approximately 55% of the index is comprised of the U.S. stock market and 45% is comprised of international stock markets, including both developed and emerging countries. The “Net Total Return” version of the index is reported here, which means the index reinvests dividends after the deduction of withholding taxes, using a tax rate applicable to non‐resident institutional investors who do not benefit from double taxation treaties. The Emerging Market index is the MSCI Emerging Markets Gross Index. The U.S. Fixed Income index is the Bloomberg Barclays Capital U.S. Aggregate Bond Index, which is a broad-based benchmark selected as the best available proxy for a high quality, diversified fixed income portfolio suitable for a U.S. investor. It is comprised of the Barclays Capital U.S. Government/Credit Bond Index, the Mortgage-Backed Securities Indices, and the Asset-Backed Securities Index. It is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, with maturities of at least one year, and an outstanding par value of at least $100 million. The “Total Return” version of the index is reported here, which means that dividends are included and reinvested. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. It is not possible to invest directly in this or any other index.